Academic journal article Journal of Management Information and Decision Sciences

The Productivity of Agricultural Sector and Industrial Sector as a Driving Force of Economic Growth and Community Welfare in Indonesia

Academic journal article Journal of Management Information and Decision Sciences

The Productivity of Agricultural Sector and Industrial Sector as a Driving Force of Economic Growth and Community Welfare in Indonesia

Article excerpt

INTRODUCTION

This study aims to examine the effect of agricultural and industrial sector productivity on economic growth and community welfare in Indonesia. Economists, since the early development of modern economics, have actually embarked on trade liberalization and they are seen as the founders of classical economics, which considers liberalism the essence of the economy. They believe that inter-state trade should be left free with as minimum as possible government intervention, in the form of tariffs and or other barriers. This is based on the argument that free trade will provide greater benefits to trading countries and to the world and it will increase greater prosperity compared to non-trading activities. Nevertheless, the course of further economic theory development, supported by several empirical facts that give a different picture to the expectations of classical economic theory, has proven that not all predictions of classical economic thinkers are true.

Indonesia, as a developing country with an open economy and ratified various regional and global economic and trade cooperation agreements, will finally feel the pressure of liberalization that in the end will be clashing with internal policies and threaten the national interests. Furthermore, inevitably, in the current era of globalization, trade liberalization has been the focus of economic development strategies in developing countries. This is because trade barriers of any kind, such as tariffs or quotas, are believed to only create inefficiency costs in terms of both production and consumption leading to low level of welfare.

Internally, Indonesia has begun to reform its trade policies since the mid-1980s, when there was a decline in the crude oil price in the world market as the mainstay of the national export commodity. In this case, the government conducted a series of economic deregulation to encourage exports that generate foreign exchange (Erwidodo & Payogo, 1999; Feridhanusetyawan & Pangestu, 2003). The more open and integrated foreign trade is also driven by external factors such as the ratification of trade agreements between countries, regions, or even global ones (Anugrah, 2003; Kariyasa, 2003). Feridhanusetyawan and Pangestu (2003) explain that these external pressures of liberalization happen due to regionalization efforts in the late 1980s and mid-1990s (as with the establishment of AFTA and APEC) and commitment to the Uruguay Round Agreement as part of a series of GATT (General Agreement on Tax and Tariff) that was later transformed into a formal organization called WTO (World Trade Organization). AFTA and WTO agreements are binding, while the APEC (Asia Pacific Economic Cooperation) agreement is voluntary. Nevertheless, the spirit brought by the three forms of institutions is relatively similar, namely liberalization through the decline of trade barriers (tariffs and non-tariffs).

Considering the diverse effects of trade liberalization both on economic growth and people's welfare in developing countries, the researcher was interested to know how the effects of trade liberalization in Indonesia. This study tries to observe and analyze those relations. Based on the background, this study aims to examine the effect of trade liberalization on the welfare, directly or indirectly, through the productivity of the agricultural sector and the productivity of the industrial sector, which affects economic growth and the welfare of the community.

LITERATURE REVIEW

Trade Liberalization and Productivity of Agriculture and Industry

Weisbrot, et al. (2002) examine the relative impacts of trade liberalization in developing countries and they have found that with increasingly open market access in developed countries to developing countries, some of the broadest economic models show that most developing countries are actually experiencing a loss of trade liberalization in some important sectors, such as agriculture and textiles. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.